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Legal origin and intellectual property rights: an empirical study in the prerecorded music sector

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Abstract

This article aims at identifying differences in copyright protection in prerecorded music markets, and more specifically the impact of the legal system on the demand for original music CDs. To this end, we use a panel of 28 OECD countries in the period 1999–2005. After testing alternative specifications, our results show that differences in legal origin lead to differences in intellectual property rights enforcement. Our results also consistent with previous studies that find that common law countries have more secure property rights.

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Notes

  1. Except for Iceland and Luxembourg.

  2. Our work, however, does not deal with the efficient level of IPR protection. Theory tells us that too much enforcement may lead to excessive monopoly rents, while too little may not give enough incentives to creation and production.

  3. See Landes and Posner (1989), or Posner (2005).

  4. Network externalities imply that a consumer’s valuation of a product increases with the number of consumers. On the other hand exposition effects are best illustrated if we keep in mind that it is unlikely for a consumer to purchase an album he does not know; therefore the access to copies increases demand by shaping consumers preferences as these get exposed to music.

  5. Napster was the first file-sharing network. It was introduced in 1999 and closed 2 years later.

  6. See La Porta et al. (1999).

  7. 1: piracy is less than 10% of overall market; 2: 10–25%; 3: 25–50%; 4: more than 50% of overall market.

  8. Our model relies, to a varying extent, on previous work by Hui and Png (2003), Takeyama (1994), and Varian (2000).

  9. A referee correctly noted that the supply model we propose may not be adequate for describing the prerecorded music sector in which winner-takes-all markets are common (see for instance Kretschmer 2006). However our study is focused on demand, and the supply condition only plays the role of identifying the endogeneity in price. Therefore, and while we should take our assumptions with care, we believe that results are not significantly altered by this oversimplification.

  10. All OECD countries except for Iceland and Luxemburg as there were no available data on music sales.

  11. It would seem more intuitive to use broadband penetration. However we use its complement for practical reasons; as in our analysis we take logs of all variables we need them to be strictly positive (note that for some countries, specially at the beginning of the period, broadband access is reported as null). Moreover by proceeding this way we are actually measuring a cost: the smaller the population without broadband access, the smaller the cost.

  12. A significant percentage of the final price of a music CD is the retailing and distribution margin. As per the estimates in OECD (2005), this percentage varies between 30 and 47% of the final price.

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Acknowledgments

The authors would like to thank an anonymous referee for helpful comments on an earlier version of this article. Juan Montoro would like to acknowledge financial support by the Generalitat Valenciana under grant ref. BEST/2007/148.

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Authors and Affiliations

  1. Departamento de Economía Aplicada, Universitat de València, Valencia, Spain

    Juan Dios de Montoro Pons

  2. Departamento de Comercialización e Investigación de Mercados, Universitat de València, Valencia , Spain

    Manuel Cuadrado García

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  1. Juan Dios de Montoro Pons
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  2. Manuel Cuadrado García
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Correspondence to Juan Dios de Montoro Pons.

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de Montoro Pons, J.D., Cuadrado García, M. Legal origin and intellectual property rights: an empirical study in the prerecorded music sector. Eur J Law Econ 26, 153–173 (2008). https://doi.org/10.1007/s10657-008-9056-8

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